with a beautiful and powerful name “Dragon Pattern” is actually very similar to trading using the “W” or “Double Bottom” pattern, but has significant differences. Dragon pattern often appears on charts of various time intervals, so there should not be any difficulties in finding it. Preference should be given to higher timeframes as the most reliable and giving long term forecast, which is considered more stable.

Buy reversal

Sell ​​reversal

Features of the “Dragon” pattern

Most often, this pattern occurs near market highs and lows. This Price Action pattern is an excellent opportunity for a trader to enter low-level trades relative to profit potential.

You can use any currency pair (preferably with a minimum spread) and any time frame - preferably M15 and higher.

First, the “head” is formed, then the price decreases, forming “dragon paws” (2 pieces). The second “paw” indicates a possible price reversal. A good sign of such a reversal is an increase in trading volumes. From the “head” to the “hump of the dragon” the trader can draw a trend line.

In fact, the pattern is a reversal figure, like the “W” or “Double Bottom” patterns. Price closing above the trend line, confirmed graphically, i.e. visually this is a signal that the trend has reversed. The second confirmation is the closing of the price above the “hump” level, since this is the so-called an oscillatory maximum that formed between the “paws” of the dragon.

Point A forms the “Dragon Head”.

Point B - “The first leg (paw) of the dragon.”

Point C - “Hump”, is located in the range of 38.2-50% of the segment AB.

Point D - “The second leg (paw) of the dragon.”

Point E is a breakout of the trend line. This is where we enter the market.

Point F is the first point where we fix part of the profit (88-100% of the C-D segment).

Point G is the second point where we fix part of the profit (127% of the segment B-C).

Point H is the third point where we fix the rest of the profit (138% of segment B-C).

Fig.3

In the screenshot we see a convenient moment for selling.

Exit from the position is carried out at points F, G and H, comparing the length of the segments or using Fibonacci levels. The latter is more preferable and easier to determine visually. We stretch the level grid using point A as the 100% level, and point B or D (furthest from point A) as the 0% level.

Fig.4

Our profit was 38+27+15=80 points. Not a bad result.

Pattern strategy “Dragon Pattern”– profitable and efficient vehicle. The main thing is to learn to quickly and correctly recognize the pattern and use strict money management.

Enjoy your health and remember that the profitability of trading very much depends on

Hi all. I became acquainted with the Dragon pattern relatively recently. More precisely, relatively recently, I found out the name of the model that I had seen and successfully traded on Forex for many years.

If you constantly study the markets, then you should be aware of the situation when you find a certain model, test it, and after you understand that it works, you begin to implement it in your trading, bragging to others, saying how smart I am, I found a cool trading formation.

But, I keep repeating this, everything in the market was invented a long time ago and the task of modern traders is to take the existing developments and understand the essence of the figure, and then begin to apply it in their trading.

I can’t say exactly when and by whom the Dragon pattern was invented, if anyone knows, maybe they read it in books, share the information, but the fact that the formation is working does not raise any doubts.

How the Dragon pattern is formed

Unlike the above examples of candlestick analysis combinations, which are formed from one, maximum three candles, in the case of the Dragon you will have to be patient.

To be honest, I really like these types of patterns. Take, for example, the excellent Head and Shoulders pattern. At the moment the head is formed, I can already predict what movement will follow and if my expectations are justified, in addition to profit, I will receive additional, moral pleasure.

In the case of the Dragon, everything is similar. The pattern has known points, without which formation is not possible:

• Head.
• Right leg.
• Left leg.
• Hump.
• Tail.

Each of the points must be located in the designated place, without distortions and various force majeures.

The Dragon pattern is a reversal, bullish pattern in the Forex market.

To be able to trade a formation, you should know the following important data:

• In a downtrend, the last local maximum should be identified, this point will be the head of the Dragon.
• After this, the market continues its decline and reaches a certain level, below which it cannot go. This point will be the left leg.
• The Dragon's Hump is a corrective movement from point 1 to 2. It is important that the correction ends no higher than 38.2% - 50%.
• After the expected correction, the market should try to break through the lows again. The ideal option would be a failed attempt. The logic here is this: since the bears cannot push through the minimum, it means their strength has dried up and if the bulls join in and try to seize the initiative, they can open purchases.
• From the head to the hump, we draw a trend line. This line will be the signal line. As soon as the trend breakout occurs, the Dragon pattern is formed and you need to open Long.
• StopLoss is set below the dragon's feet.
• The first goal is the hump level, the second goal is the head, and we set takeprofit on them.

• An alternative option is a situation in which the bears manage to push the market below the first leg. For me personally, this nuance weakens the pattern. In this case, I think this way: since the bears managed to update the lows, it means they are not so weak and you need to be more careful with purchases, but classic description does not exclude this option, which I am informing you about.

The bullish Dragon reversal pattern has its mirror image in the form of a bearish one reversal pattern Inverted Dragon. Everything that was said above about the bullish model is identical to the bearish one, so I don’t see the point in telling it a second time.

The Dragon pattern has amazing implementation statistics. I have already written that just as candlestick combinations get their names due to their similarity with real life examples, the Dragon was also named for a reason.

On purpose, in the screenshot below, I put a graph on..., well, you understand. Look what happened.

As for me, the similarity is not just visible, it is obvious. There is an elongated head, right and left legs, and a tail, of course.

On the issue of correct identification on the graph. Absolutely any reversal combination on Forex must be based on something. It’s not for nothing that they write in books that the figure was formed at the very bottom of the market. Of course, where the bottom is now, in an hour it may not be the bottom at all, but you should still adhere to the rules.

The idea of ​​determining the bottom of the market comes down to identifying the levels from which the market previously bounced. It is believed that if a price rebounded from a certain price in the past, it is likely that there will be a rebound from this price in the future. Based on this logic, you should start looking for any graphic figure, and in this case the Dragon, only if the price approaches the level of support (for a bullish figure) or resistance (for a bearish figure).

A short instruction will help you avoid false detection of patterns:

1. The formation of a figure begins with finding the current trend movement (how to do this is described in detail) (in a downward trend, we look for a dragon, in an upward trend, an inverted dragon).
2. The probability of a price reversal is higher at important levels. No level, no reversal.
3. The dragon's hump should not be higher than 38.2% - 50% of the distance from the head to the left leg.
4. The right leg should be located 5 - 10% from the left leg. Ideally, it will be higher, but an alternative option is allowed in which it is lower than the left leg.
5. If the trend line is broken, do not rush to open a deal. Assess the potential and compare it with the expected loss. If there are no complaints about this point, open a deal.

Graphical analysis stock quotes tradable instruments - one of the primary types of technical analysis. Empirical observations allowed traders to notice patterns in price behavior that prove its non-random behavior. Otherwise, how to explain support and resistance lines, triangles, “flags” and “pennants”, on which quotes have been behaving with a high probability of a standard forecast for a century now.

During the historical development of graphical analysis methods, traders described several dozen such figures. It must be admitted that a trader will need a “trained eye” to detect a pattern, which requires theoretical preparation and practical training.

You can take a different path, choosing a “reliable” graphical analysis figure, build trading strategy, having determined the entry tactics when this figure appears and the rules of money management.

Trading pattern "Dragon"

A pattern is a sample or pattern of something. In graphical analysis, we mean a repeating figure. technical analysis. The Dragon pattern occurs in trending markets, where the trend develops after a failed impulse, however, this is not a strict rule, most likely an observation.

The pattern begins with head A (the top from which the reversal occurs), legs B and D, hump - C. The point of intersection of quotes E with straight line AC gives an entry point, in our case, a buy.

For selling, the dragon figure is similar, we find two paws, wait for the quotes to cross the hump line, and we get a selling point.

According to the author of the pattern, "Dragon" model occurs on any time frame, and this pattern can be traded on any currency pair. A change in market trend, as a rule, does not happen in one movement. And in most cases we actually see different reversal models at moments of serious trend changes. However, it is not worth trying to trade on very small time frames, the dragon model; as a rule, from our experience, the optimal time frames are H4 and H1, and it is on them that the model works very well.

Similarity of the “Dragon” model with classic models

Dragon pattern very similar to the “Double Top”. In fact, the dragon pattern is just an improved double top pattern. The author just added Fibonacci levels to clearly identify the model and slightly improved the entry into the market. As a result, the dragon model actually became much better and the inputs had smaller stops. We'll tell you how this happened below.

Features of the “Dragon” model

The features of the “Dragon” pattern boil down to the following: the model can be classified as a trend reversal model, but in this case there are clearer rules identification of the "Dragon" model and building better target levels compared to the classic “Double Bottom and Top” model. Thus, the profit-to-loss ratio will be much higher than in conventional classical models of technical analysis of the Forex market.

Double Top and Bottom Pattern

Let's remember what it is. There must be a previous movement and then the price tests either a support area or a resistance area twice. After this, a reversal occurs with targets equal to the width of this lateral movement.

Formation of the Dragon pattern

The formation of the “Dragon” model begins from the top, otherwise it is called "Dragon" head, and it is worth noting that the dragon’s head is absolutely not similar to the head in. Here the meaning of the dragon model is different.

Formation of the "Dragon's Paws"

After the formation of the dragon's head, the price falls, and two tests of the support level are formed, which in turn are called "dragon's paws". Moreover, the name of the dragon's paw sounds much better than two tests of resistance or support levels; here the author really traded dragon for a long time and made very good conclusions and developments on the pattern. The difference between the dragon's paws, according to the author, should be no more than 5-10%, i.e. if the first paw is lower than the second paw of the dragon, then the model can work. Again, a significant difference from the “double bottom or top” pattern; there we would not trade a pattern with serious distortions.

Second leg of the Dragon pattern

As a rule, it is a reversal signal is formed on the “second leg”, which needs to be looked for on smaller time intervals, for example, the same “head and shoulders” pattern can act as such a signal.

By the way, quite recently, this is exactly the model of the dragon that was on currency pair usd/chf, which we mentioned in our Forex forecasts.

Trend line in the Dragon model

When forming the Dragon pattern you can build a neck line from the “Head” to the “Back” of the “Dragon” - a kind of neck line, but here it is simply called a trend line. As soon as the price breaks the trend line, it appears buy signal, which also acts as a signal for a trend reversal, this is the second moment where we can open a dragon trade.

The next trade can be opened when the “dragon’s back” level is broken. Moreover, this will already be from classic model"double bottom or top" in technical analysis e. Of course, the stop for this model will be much larger than when trading from the dragon's paw or from breaking the neck line.

Dragon back level

An important part of the dragon model is the moment when we determine where the “Back” is located. According to the author the dragon's back should be at 50-38.2% of the fall from the "Head". In general, you can try to determine these levels “by eye”, but first add Fibonacci levels.

Dragon's second claw level

The formation level of the dragon's "Second Paw" is located in the area between 61.8-1.27% from "First Paw" to "Back". This is also important because if we see a strong continuation of the decline, this cannot in any way indicate the correctness of the model. The second leg of the dragon pattern should be located strictly within the acceptable range of 61.8 – 1.27%.

Defining goals using the Dragon pattern

To determine goals using the dragon model, you can use the classical approach. Or focus on the Fibonacci extension, where important dragon target levels will be 1.27 – 1.68% from the level of the back to the level of the formation of the second paw of the dragon.

The second option for determining the dragon’s goals is based on the nearest resistance level between the “Back” and “Head” and the level of the “Head” itself. Here we simply focus on the price chart and follow it fix profit using the dragon model. All the same rules will work for the Dragon pattern at the top of the market.

It is the trader’s recognition of various patterns that determine current events in the market in the form of price models. Patterns rarely repeat at the same trading levels or time intervals, but there are patterns that repeat in a certain sequence and form. For successful trading, it is very important for a trader to be able to recognize similar patterns on a chart and follow their rules. This article discusses a trading strategy using one of these patterns, called the Dragon pattern.

The transition from bearish to bullish market conditions and vice versa, as a rule, occurs with the participation of a series of certain types of price trends that test the formed support and resistance levels. At its core, the Dragon pattern contains similar turning points, on the basis of which a trader can determine successful moments for concluding transactions. At the same time, the Dragon pattern occurs on almost all currency pairs and time intervals.

Description of the Dragon pattern

By appearance The Dragon pattern is reminiscent of the double bottom graphic pattern, but it has some distinctive rules and targets. It is also worth noting that there is an inverted Dragon pattern, which accordingly resembles the double top pattern.

The Dragon pattern is formed, as a rule, near the market bottoms. Therefore, such graphic models provide the trader with an excellent opportunity to enter into a transaction that has a low level of risk compared to the possible potential profit.

The formation of the Dragon pattern begins with the “head”, after which, due to a decrease in price, two “dragon legs” are formed on the chart. It is worth noting that there is often a difference of approximately 5-10% between these two paws. A signal for a reversal of the current trend appears on the second formed leg, and a reversal bar or divergence with the oscillator used is observed. A price reversal in the market is followed by an increase in the volume of transactions concluded, which can also be considered a good signal for a change in trend. If you connect the “dragon’s head” and its “hump”, you can get the current trend line.

After the price closes above the trend line, the trader receives graphical confirmation of the formation of the pattern, which is a signal of a trend change and can be additionally confirmed by an oscillator. The Dragon pattern is also confirmed by price closing above the “hump” level, which is a swing high between the “dragon’s legs.”

Dragon pattern structure

A – “Dragon’s Head”

B – “The First Paw of the Dragon”

C – “Dragon’s Hump” (located within 0.38 - 0.5 from AB)

D – “The second paw of the dragon” (usually 0.618 or 1.27 from AB)

E - Breakout of the trend line (signal to open a buy deal)

F - First profit target - 1.27 CD

G - Second profit target - 0.886 - 1.0 AB

N - Third profit target - 1.38 AB

I - Safety stop loss, placed a few ticks below the smaller of the dragon's two legs.

The figure below shows the Dragon pattern formed on the 30-minute price chart currency pair EUR/USD. Trading in this case is carried out as follows:

Inverted Dragon pattern

The inverted Dragon pattern is similar in appearance to the Double Top pattern. Trading on it is carried out under the same conditions as in the case of a direct pattern. The "dragon hump" is usually formed at a distance of 38-50% between the "dragon head" and the first paw. The signal to open a sell transaction is the closing of the candle below the trend line. The second confirmation of the formed Dragon pattern is the closing of the candle below the “dragon’s hump” level, which is also a signal to conclude a sell transaction.

1. Trading position opens for sale under the formed trend line.

2. The profit target is the swing low preceding the first dragon's claw.

3. A safety stop loss order is placed above the high of the second leg of the dragon.

Conclusions on the Dragon pattern

The graphical model of the Dragon pattern is one of the variants of a double top and a double bottom. It is used by traders to find important turning points in the Forex market and predict trend transitions in the opposite direction. Although the Dragon pattern is rare on daily or weekly charts, it is quite common on smaller time frames. To increase the reliability of trading using this pattern, it is recommended to use additional indicators.